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It’s time to answer another reader question:
Dear Attorney Guertin:
My mother is law is 86 years old. In December she moved in with us after her husband passed away. She has dementia, although we did not know this when she moved in. Sometime down the road she may need nursing home care. If she gives away $13,000 to each of her children and grandchildren, will this be taken away from them if she runs out of money in 2-3 years?
M
North Branford
M- It is true that the IRS allows any person to gift up to $13,000 to any single person. This means that any person can give up to $13,000 to any number of individuals without having to file a gift tax return or paying any gift taxes on the transfer. However, when the question is framed in the context of nursing homes and Medicare it might not be a good idea to gift money out of your estate to “real people.” Although it is permissible to give funds away under the Internal Revenue Code, the State of Connecticut may be looking for those funds should your mother-in-law need nursing home care provided by Medicaid.
In order for an asset not to be considered when a person is applying for Medicaid, it needs to be out of the applicant’s estate for five years. Imagine a situation where assets are gifted out in year 1 and in year 3 those assets are needed for nursing home care. If the person does not have the money to pay for their care they will need to apply for Medicaid. When you apply for Medicaid, the State will ask for all sorts of information about your assets, including questions about transfers you have made- and believe me, they will investigate. Funds that were gifted out will count as an available asset if they were gifted within the five year window. What happens if those assets that were gifted out have been spent, or were lost in a lawsuit or a divorce? If the assets are not available (to pay for your care) a penalty period will be assessed against the Medicaid applicant. Imagine that nursing home care in Connecticut costs 15,000 per month. If the applicant gifted out $45,000 the year before they applied for Medicaid they would be assessed a three month penalty- meaning they would need to pay for their own care for three months.
Gifting to a “real person” is not the best idea and is quite risky. A better idea would be to gift those funds to an entity such as an Asset Protection Trust. An Asset Protection Trust is irrevocable by nature. The grantor (the person who funds the trust) will have no control over the Trust. Typically, a trusted family member serves as Trustee and manages the assets in the Trust. The Trust has beneficiaries which will take under the trust after you die.
Asset Protection Trusts are better recipients of the gifted assets because they don’t get sued or get into car accidents or divorced. If funds are needed to pay for your care they are available through the Trustee. If you want to play it completely safe an Asset Protection trust is the way to go.
If you would like to learn more about what an Irrevocable Asset Protection Trust can do for you and your family, Guertin and Guertin, LLC will be hosting a no cost, informational workshop on protecting assets on November 2, 2011 at 6pm. If you would like to attend, please call our office at 203-234-7400.
Most people never think that they will ever end up in a Nursing Home. However, the sad reality is that almost half of the population will spend some time in a nursing home during their lifetime. Currently, the average time spent in a nursing home is 2.5 years
A long term stay at a nursing home can be financially devastating for you and your family. Connecticut Nursing home care rates of $12,000-$15,000 per month can quickly eliminate a lifetime’s worth of hard work. Long term care in a nursing home can devour your savings and force your home to be sold at a “fire sale” price to pay for your care.
When people are faced with choosing between preserving their assets and paying for care, there really is no choice, unless the costs of long term care in a nursing home are planned for. Giving away your money (to a child, for example) before needing long-term care may sound like a good idea, but it can be risky. Children get divorced, sued, have creditor issues, or can become catastrophically ill. The assets gifted to your child could be lost through divorce, lawsuits, etc. and would not be available to you. Furthermore, due to restrictive gifting laws, you may not qualify for Medicaid because you gave your money away.
An Irrevocable Asset Protection Trust (IAPT) provides an opportunity for individuals, both single and married to protect their assets long term. These assets could be available to you at sometime in the future to pay for things that Medicaid does not, or for an individual’s spouse or as a legacy for future generations, without the risks associated with giving these assets away to another individual.
An IAPT is a legal entity separate from the person who creates it (the Grantor). It is created by signing a Irrevocable Trust Agreement where the Grantor irrevocably transfers assets to a third person called the Trustee (often the Grantor’s children or other relative) who holds that property in Trust for the benefit of the people who are named as beneficiaries.
Timing is extremely important when establishing an IAPT. “Beat the Clock” is the name of the game. In order for an IAPT to work it must be set up well in advance of anticipated nursing home care (currently 5 years). After the passage of enough time the assets held by the IAPT will be insulated from the ravages of a long term stay in a nursing home, as well as creditor issues, and lawsuits. Furthermore, the assets held inside of the trust will pass to your beneficiaries probate free and within weeks, as opposed to months if these assets were to pass through the probate process.
If you would like to learn more about protecting your assets, Guertin and Guertin, LLC offers a free consultation on protecting your assets. Give us a call at 203-234-7400 to schedule your appointment today. We also will be hosting informational workshops on this topic and others this fall- be on the lookout for dates and times. If you’d like to be added to our mailing list (to be notified of future workshops) drop us a line at info@guertinlaw.net.
If you have questions that you’d like answered here, please email me at marc@guertinlaw.net.
Marc Guertin, is a partner at Guertin and Guertin, LLC, a law firm dedicated to Estate Planning, Elder Law, Trust and Probate Administration. He is co-author of Planning for the Future: A Practical Guide to Estate Planning and Avoiding Bad Heir Days. Visit us on the web: www.guertinandguertin.com. Call us at 203-234-7400 for a free consultation. Read Marc’s blog at: www.deathslittleinstructionbook.wordpress.com. Guertin and Guertin, LLC is located at 26 Broadway in North Haven, Connecticut
Do you have children, or other relatives who have found themselves on the wrong side of the law? Have they spent a little time in the pokey? If any of your potential heirs have spent time incarcerated in the state of Connecticut, you may want to think twice about leaving them anything of value in your estate plan.
Leaving assets to a person who has been a “guest” of the state of Connecticut for any amount of time presents a major good news/ bad news situation for the heir. The good news is, somebody cared about the heir enough to leave him/her something-good news. If we could just stop there, everything would be fine. Rarely is their good news without a little dose of bad news. And now…the bad news. The state wants to be reimbursed for the cost of incarceration. That’s right, the state of Connecticut wants to be paid back for the cost of the inmates “three hots and a cot.” The cost of housing and feeding an inmate over a number of years can really add up. Paying your debt to society never had a more clear meaning.
Thinking about “hiding” the money somewhere? Be forewarned- the Connecticut Department of Revenue Services (DRS) are very, very, very good at their job- finding the money. The DRS has been there and done that and they are always sure to check under the mattress.
There are options (not many) if you want to leave something to someone who is or has been incarcerated. There are some good ideas and some not so good ideas on what to do with an incarcerated beneficiary. It is important to note that there is no magic bullet here; every option has its own unique drawbacks. Professional counsel should be sought before making any decisions or changes to your estate plan.
A lot of people are very concerned with avoiding probate. Many people believe that as long as they have a valid Will, they can avoid Probate. This is exactly the opposite of what actually happens when you die with a Will. A Will is often called “a ticket to Probate.” If you really want to avoid the time, expense and public nature of the Probate process, a Will always falls short of the mark.
Many people look to Revocable Living Trusts to avoid probate. Probate is the process of removing a decedents name from property and assets that person owned when they were alive. So, it follows that if your name is not on any property or assets when you die- there is no need for probate. Revocable Living Trusts help people to do just that.
A Revocable Living Trust acts as a legal container that holds property for the benefit of the beneficiary of the Trust, who is usually a person, an institution or a charity. Trusts are legal agreements between three different parties: The Grantor (sometimes called a Trustmaker or Settlor) who establishes the Trust, the Trustee who administrates the Trust, and the beneficiary, who receives some sort of benefit (usually income) from the Trust.
Imagine a Revocable Living Trust as an “open box.” You can put assets into the box and you can take assets out of the box. The box is a alter ego for yourself. You can manage the assets in the box or appoint someone else to do that for you. You have total control- just as you would if you owned the assets outright (outside of the trust). Assets owned by the Trust (most likely managed by you for your benefit) will not have to be probated when you die- because you don’t own them- the Trust does.
Revocable Living Trusts are a great method of avoiding probate and the costs, lack of privacy and time associated with probating an estate. By using a Revocable Living Trust you can put your assets into your beneficiary’s hands in days instead of months, minimize the cost of transferring the assets, and do so privately.
If you would like to learn more about how Revocable Living Trusts work to avoid probate, and minimize estate taxes, Guertin and Guertin, LLC is offering a no cost workshop on April 7th at 6pm. Seating is very limited. Please call my office at 203-234-7400 to reserve your space.
In my day to day practice I’ve see one issue come up often: outdated documents. Some of the documents are just a little out of date, others are museum pieces. Even though these documents are drafted with skill and contemplate events far into the future, they often are in need of serious updating. Many plan once and then go into “estate planning hibernation.” In this Rip Van Winkle like state, they remain for twenty or thirty years as their world changes. A lot can change in twenty years, or even in a minute.
A Will that is out of date may not be any better than having no Will at all. A Will that was executed twenty years ago probably needs to be updated; people have been born, some have died, some grew up to be great people, others grew up to be not such great people. There have been divorces and remarriages. All of these things change the way you plan your estate.
Your estate plan should be reviewed every few years, and more often after the happening of certain events. Your plan should be reviewed upon birth, death and adoption of a child, a marriage or divorce, tax changes, the death of someone named in your current Will/Trust, changes in income/wealth, and any other major life change.
Consider giving yourself an annual estate planning checkup. You do not even need to meet with your lawyer for this exercise. Once a year take out your estate planning documents and your life insurance policies and other important documents and read through them. Give yourself an estate plan self-exam. Make sure that your plan conforms to your wishes, if it doesn’t, do what is necessary to make the changes you desire. Check your beneficiary designations on your life insurance policies- Are they correct? Make sure that the proper people are listed as beneficiaries. Often, ex-husbands and ex-wives are listed as beneficiaries of life insurance policies because they were never removed after a divorce.
There are many things people can do without an attorney to make sure they have the best possible plan in place. If you’re interested in learning more about non-legal solutions to common estate planning problems, my office is hosting a workshop on this topic on September 16. Please call 203-234-7400 or email us at info@guertinlaw.net to reserve your seat.
Like this:
Earlier this week the business section of The New York Times ran a great article about a recently deceased Texas billionaire, Dan L. Duncan. According to Forbes Magazine, Mr. Duncan’s net worth was about $9 Billion, making him the 74th richest person in the world. Not bad for a guy who started his business with $10,000 and two propane trucks.
Mr. Duncan died earlier this year creating a good news/bad news tax “situation” for his family. The New York Times did a wonderful job of highlighting the good news; however, they completely missed the boat on the devastating bad news.
The good news was really (really, really) good. Because Mr. Duncan died in the 2010 tax year, his $9,000,000,000 estate escaped a 45% estate tax. Mr. Duncan’s fortuitous death saved his family at least $4,050,000,000 (wow that’s a lot of zeros). Due to a lapse in the estate tax this year, Mr. Duncan’s estate received “uber-favorable” tax treatment (or no tax treatment at all). That’s the good news and that’s what The Times focused on, and who could blames them- they were probably blinded by all of those zero’s.
2010’s estate tax anomaly will surely be fixed soon. Many practitioners believe that next year the estate tax exemption will settle at $1,000,000, putting everyday families at the risk of having to fork over nearly half of the amount over a million to the federal government.
Mr. Duncan’s estate saved $4.5 billion, this year- that’s good. Mr. Duncan passed a large chunk of his estate to his wife via a Will, that’s bad. A Will…that’s right, no sophisticated estate/tax planning for this billionaire-his estate got lucky, but I’ve got a feeling there will come a time when the luck will run out.
So where is the dark lining in this silver cloud? The dark lining, in this case, is how Mr. Duncan passed these assets to his wife- a Will. Most likely, at this point, she owns the assets outright and free of trust. Now for the bad news: When Mrs. Duncan dies, there surely will be an estate tax and all those assets that she now owns will be taxed. Uncle Sam is patient- he can wait a few years, especially when the tax treatment of these assets will be more favorable to him. If Mr. Duncan had planned better and utilized even a simple revocable living trust, it is quite possible that these assets would NEVER be taxed by the estate tax.
The New York Times only highlighted the good news: Huge tax savings in 2010, not the bad news: A multi-billion dollar estate tax time bomb set to go off once Mrs. Duncan dies. Many would argue that there are billions of reasons for Mrs. Duncan to die this year. Be careful Mrs. D.
Tuesday is always an interesting day in “Guertin Land.” Tuesday is my work at home day. One day a week I play lawyer and daddy from home. My wife is off to her weekly meeting and its just me, my son, the dogs and client files. Now I try to make this as legit a work day as possible- this means attempting to get up, awake and working long before my 20 month old wants to start his day ( which sometimes happens at 5 a.m)- just last week at around 5:12 AM Jeremy was belting out at an extreme volume “Allllllll Aboard!” He hasn’t been the same since he took a ride on the Essex Steam Train. So I parent and work my way through the day. This morning I was working on a trust and I wrote this paragraph, that when I re-read I could not help think that if I get hit by a bus tomorrow and die- nobody,I mean NOBODY will know what the heck I was trying to say. So, try to get into my mind- read what I wrote and post a comment with what you think I meant- the person closest will get a copy of my book and something random from my office.
The term “Equally” when used in this agreement means that if one of the grantor’s issue receives any property because of the grantor’s death (including property not passing through the grantor’s estate such as real property, life insurance, joint bank accounts, investment accounts and all other non-probate assets), which when added to the property passing by way of this trust equate to a greater total fair market value (at the time of the second death of me and my spouse) than the grantor’s other issue would receive. The Grantor’s issue receiving the greater total amount, considering all of the above, shall be required to pay to the issue receiving the lesser amount, an amount necessary to equalize the total amounts necessary to effectuate a 50/50 total distribution to both of the grantor’s issue, per stirpes. If either or both of the grantor’s issue has made a contribution to any property increasing the fair market value (exceeding $1,000), that amount will be subtracted from the fair market value before the above calculation.
We’re going to hit up the “way back machine” this week. I’m going to take you back…way back. Way back to a post I wrote in February of 2009 (okay- maybe we’re not going that far back). Why you ask- well because I am currently writing a post on what happens if you die with a Will, and I thought that this would be a nice primer- showing what happens if you die without one. So here goes..get ready to flashback… are you feeling tingly?
If a person dies without making a Will he/she dies intestate. Without a Will, a decedent’s property will pass according to the State of Connecticut Intestate Succession Laws. If you are thinking that “intestacy” sounds like some sort of sickness, you may not be too far off the mark. When you see how the state distributes the funds of those who die intestate… you may feel a little sick.
In Connecticut, State statutes provide that if a person dies intestate, and there are children that are the children of the decedent and the spouse, the surviving spouse will receive the first $100,000 plus one half of the balance of the intestate estate. The children will receive the remainder. For example, assume a $500,000 estate: The spouse will receive $300,000 ($100,000 plus half of the remaining $400,000) and the children will receive the remaining $200,000 in equal proportions ($100,000 each). Now let us suppose that there is only one child who is 18 years-old. Even a very mature 18 year-old may have difficulty handling a check for $200,000.
Typically, when most people plan out their estate, they want all of their assets to go to the surviving spouse and not to their children. The thought is that the surviving spouse is in the best position to use the assets wisely for the benefit of the children. In many scenarios it does not make sense to hand a large sum of cash over to a child or young adult. Imagine trying to convince an 18 year-old into investing his/her money in a college education — good luck.
The rules are different if the decedent had children that were not children of the surviving spouse. In this case, the surviving spouse would receive one-half of the intestate estate, and the children would receive the balance. This solution seems to be based in logic. The state wants to make sure that the step-children of the surviving spouse are not taken advantage of by a person who is not related to them by blood. While this plan works in preventing the aforementioned problem, it still puts money into the hands of people who may not be ready to handle it. With a Will based plan you can direct where your assets go, as well as direct appropriate measures to protect your children from the problems that come with receiving a large sum of money outright.
If there are no children of the decedent, but the decedent is survived by a parent or parents, the spouse does not receive the entire intestate estate. In this scenario the surviving spouse will receive the first $100,000 plus three-quarters of the balance, and the parents would receive the balance of the estate. Furthermore, if there are no heirs to the estate, the decedent’s money, property, etc., will escheat to the state and the state will become the owner. It’s probably not a coincidence that you cannot spell escheat without “c-h-e-a-t.”
As you can see from the above sampling from the Connecticut Intestate Succession Statutes, by not planning for the disposition of your property the state has a plan for you. It should be no surprise that control freaks hate the laws of intestacy. It takes control (albeit control that was never exercised) of a person’s hand and vests that control with the State, who then applies cookie cutter solutions for unique situations. The only way to avoid intestacy is to make sure that you have a validly executed Will. Any other plan will fall short.
If a person dies without making a Will he/she dies intestate. Without a Will, a decedent’s property will pass according to the State of Connecticut Intestate Succession Laws. If you are thinking that “intestacy” sounds like some sort of sickness, you may not be too far off the mark. When you see how the state distributes the funds of those who die intestate… you may feel a little sick.
In Connecticut, State statutes provide that if a person dies intestate, and there are children that are the children of the decedent and the spouse, the surviving spouse will receive the first $100,000 plus one half of the balance of the intestate estate. The children will receive the remainder. For example, assume a $500,000 estate: The spouse will receive $300,000 ($100,000 plus half of the remaining $400,000) and the children will receive the remaining $200,000 in equal proportions ($100,000 each). Now let us suppose that there is only one child who is 18 years-old. Even a very mature 18 year-old may have difficulty handling a check for $200,000.
Typically, when most people plan out their estate, they want all of their assets to go to the surviving spouse and not to their children. The thought is that the surviving spouse is in the best position to use the assets wisely for the benefit of the children. In many scenarios it does not make sense to hand a large sum of cash over to a child or young adult. Imagine trying to convince an 18 year-old into investing his/her money in a college education — good luck.
The rules are different if the decedent had children that were not children of the surviving spouse. In this case, the surviving spouse would receive one-half of the intestate estate, and the children would receive the balance. This solution seems to be based in logic. The state wants to make sure that the step-children of the surviving spouse are not taken advantage of by a person who is not related to them by blood. While this plan works in preventing the aforementioned problem, it still puts money into the hands of people who may not be ready to handle it. With a Will based plan you can direct where your assets go, as well as direct appropriate measures to protect your children from the problems that come with receiving a large sum of money outright.
If there are no children of the decedent, but the decedent is survived by a parent or parents, the spouse does not receive the entire intestate estate. In this scenario the surviving spouse will receive the first $100,000 plus three-quarters of the balance, and the parents would receive the balance of the estate. Furthermore, if there are no heirs to the estate, the decedent’s money, property, etc., will escheat to the state and the state will become the owner. It’s probably not a coincidence that you cannot spell escheat without “c-h-e-a-t.”
As you can see from the above sampling from the Connecticut Intestate Succession Statutes, by not planning for the disposition of your property the state has a plan for you. It should be no surprise that control freaks hate the laws of intestacy. It takes control (albeit control that was never exercised) of a person’s hand and vests that control with the State, who then applies cookie cutter solutions for unique situations. The only way to avoid intestacy is to make sure that you have a validly executed Will. Any other plan will fall short.
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